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Commission on sale of a home is negotiable

Seller can pay a percentage of sale price, a set fee or combination of both

Make sure you and your agent are clear, and satisfied, with the terms before signing a representation agreement. (Dreamstime image)

By Joseph Richer RegistrarReal Estate Council of Ontario

Fri., Aug. 15, 2014

Is there a standard commission that I am required to pay my agent when I sell my home?

Selling your home can be a complicated process, and hiring a real estate professional is a good first step.

As you know, real estate brokerages charge fees or commissions for their services. However, not everyone is aware that the terms of those fees or commissions , just like the terms of a mortgage, can be negotiatedbetween the parties to the agreement. Fees and commissions are not set by RECO, the government or any real estate board.

The question you have to ask yourself as you consider those fees: Am I getting value for the amount I am being charged? What services will you receive from the brokerage and the salesperson, and will they meet your needs?

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Recent changes were made regarding how a commission can be charged in Ontario. A brokerage can charge a flat fee, a percentage of the sale price or a combination of both — all subject to agreement between you and the brokerage.

It is important that you fully understand the fee structure, the rate you will be charged, the expiry date, the services you will be provided and your obligations as a client under any representation agreement with the brokerage. Under the law, this information must be included in any representation agreement you sign with the brokerage. And getting the details in writing will help you avoid potential misunderstandings down the road

From the outset, you can expect the salesperson or broker to help determine an asking price that makes sense for your home in its surrounding neighbourhood. The agent may also suggest improvements to your house to make it more attractive to potential buyers, balancing cost and impact.

But what are some of the other aspects of services you can negotiate as part of the representation agreement?

One is how long you want your home to be on the market. Some homes take longer to sell than others and it is important you have a clear understanding of how long your brokerage will be listing your home.

A second point is how the brokerage and representative intend to promote your property, and generate attention and offers. For example, the salesperson could offer to hold a set number of open houses and you can negotiate how many, and when they are to occur.

The services of the agent might also include having a staging professional prepare your home for showings. Or, they may suggest a virtual tour of your home be posted on the listing website, using a professional photographer. And what do they intend to present as promotional material during open houses or showings? Who will pay for these services? These are important questions to ask.

All of these activities require work on the part of the sales agent, and the representation agreement should be very clear about what is included in your arrangement. The goal is to avoid any surprises along the way that could lead to complications in the selling process.

There are also laws governing commissions. Brokerages can offer commission rates that decrease as the sale price increases. For example, the brokerage could charge a three per cent commission if the home sells for under $250,000 and 2.5 per cent commission if the home sells for over $250,000. Commission rates are not allowed to increase as the price increases.

The commission cannot be based on the difference between the list price and the selling price. For example, a brokerage cannot charge a three per cent commission for a property listed for $250,000 and then if it sells for $300,000, charge a larger commission on the $50,000 difference between the list and sale price.

Commission rates can also be reduced if the buyer is working with the same brokerage as the seller in a multiple representation. This relationship — and the brokerage’s obligations — must be disclosed to you and the buyer, and you both must provide written consent.

It may seem like this is a lot to consider. But it’s important when you realize the amount you pay the brokerage runs into the tens of thousands of dollars.

Joseph Richer is registrar of the Real Estate Council of Ontario (RECO). He oversees and enforces all rules governing real estate professionals in Ontario. Email questions to askjoe@reco.on.ca . Find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps .

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